Chap. XI. due to him, to give effect to the rights of one debtor against the other.1 Creditor not entitled to securities of surety. It has recently been held that a creditor is not entitled to the benefit of securities which have been given by the principal debtor to the surety." 1 Duncan v. N. & S. Wales Bank, 6 Rouse v. Bradford Bank, [1894] A. C. 586. 2 Re Walker, [1892] 1 Ch. 621, Stirling, J. CHAPTER XII. NEGOTIABLE INSTRUMENTS. described. A NEGOTIABLE instrument is a document embodying a contract Chap. XII. to pay money to a person named, or his order (which is signified Negotiable by an indorsement on the instrument), or to the bearer of the instrument document,1 and possessing certain peculiar qualities which will be best understood by considering such instruments as being exceptions to the operation of two general rules of English law, viz., the rules (1) that no man can transfer a better title to a chattel Qualities. personal than he himself possesses, except only by a sale in market overt; and (2) that a chose in action cannot, at common law, be assigned so as to give to the assignee a right to sue on the contract in his own name.3 As to the first rule : "The general rule of law is undoubted, that no one can transfer a better title than he himself possesses: Nemo dat quod non habet. To this there are some exceptions; one of which arises out of the rule of the law merchant as to negotiable instruments. These, being part of the currency, are subject to the same rule as money and if such an instrument be transferred in good faith, for value, before it is overdue, it becomes available in the hands of the holder, notwithstanding fraud which would have rendered it unavailable in the hands of a previous holder." 4 instrument represents An instrument entitling the holder to a sum of money is treated Negotiable as the representative of money, and as subject to the same rules as the money which it represents; and it has been long settled money. that the right to money is inseparable from the possession of it; 5 "the property in current coin passes by delivery of it, and the possessor of the coin, even if he has stolen it, can by actual See Partridge v. Bank of England, 9 Q. B. 396, 406, 424; Plimley v. Westley, 2 B. N. C. 251; see as to bills of exchange, the Act of 1882 (45 & 46 Vict. c. 61), s. 8 (4). 2 Ante, p. 41. 3 Ante, p. 126. 4 Per Willes, J., Whistler v. Forster, 14 C. B. N. S. 257-8; London Joint Stock Bank v. Simmons, [1892] A. C. 201. 5 Per Best, J., Wookey v. Pole, 4 B. & Ald. 6; 22 R. R. 594. 1 Chap. XII. delivery confer a good title upon another who receives it honestly." The decisions as to the negotiability of certain instruments "proceed upon the nature of the property, viz., money, to which such instruments give the right, and which is itself current; and the effect of the instruments, which either give to their holders, merely as such, the right to receive the money, or specify them as the persons entitled to receive it."2 Negotiability -how created. Negotiable instrument defined. Test of negotiability. "In the case of goods, the property, except in market overt, can only be transferred by the owner, or some person having either an express or implied authority from him; and no one can, by his contract or delivery, transfer more than his own right, or the right of him under whose authority he acts. But the Courts have considered these instruments either promises or orders for the payment of money, or instruments entitling the holder to a sum of money-as being appendages to money and following in the nature of their principal.' "The holder bona fide and for a valuable consideration of a bank note or bill of exchange has a good title against all the world; because, in the case of bank notes, they are considered as money and pass as such, and it is essential for the purposes of trade that delivery should give a perfect title; and because, in the case of bills of exchange, this is the law and custom of merchants.' 994 The quality of negotiability must be derived either from the law merchant-the recognized custom of merchants-or from some statute of the realm. And a negotiable instrument may be made payable to order of a named person, or to the bearer.6 "A negotiable instrument payable to bearer is one which, by the custom of trade, passes from hand to hand by delivery, and the holder of which for the time being, if he is a bond fide holder for value without notice, has a good title notwithstanding any defect of title in the person from whom he took it. A contractual document, in other words, may be such that, by virtue of its delivery, all the rights of the transferor are transferred to and can be enforced by the transferee against the original contracting party, but it may yet fall short of being a completely negotiable instrument because the transferee acquires by mere delivery no better title than his transferor." 7 66 Negotiable instruments therefore form an exception to the rule Nemo dat quod non habet:" and it is the capability of conferring on a bona fide holder for value a better title than that of his transferor which would appear to be the real test of negotiability. They 1 Campbell on Sale, 2nd. ed. p. 86; see per Lord Mansfield, in Miller v. Race, 1 Burr. 452; 1 Sm. L. C. 463. 2 Per Holroyd, J., Wookey v. Pole, 4 B. & Ald. 11; 22 R. R. 594. 3 Per Holroyd, J., Id. p. 10. 4 Per Bayley, J., Id., p. 15. 5 Per Bowen, L.J., Picker v. London Bank, 18 Q. B. D. 519. 6 See post, p. 172. 7 Simmons v. London Bank, [1891) 1 Ch. 270, 294. also possess the characteristic that the transferee can (and could Chap. XII before the Judicature Act) maintain an action at law upon them in his own name. These two characteristics are distinct,1 and an instrument is not negotiable unless it possesses them both. "It may be laid down as a safe rule that, where an instrument is by the custom of trade transferable, like cash, by delivery, and is also capable of being sued upon by the person holding it pro tempore, there it is entitled to the name of a negotiable instrument, and the property in it passes to a bona fide transferee for value, though the transfer may not have taken place in market overt. But that if either of the above requisites be wanting, i.e., if it be either not accustomably transferable, or, though it be accustomably transferable, yet if its nature be such as to render it incapable of being put in suit by the party holding it pro tempore, it is not a negotiable instrument, nor will delivery of it pass the property of it to a vendee, however bond fide, if the transferor himself have not a good title and the transfer be made out of market overt." 2 Therefore (for example) though a bill of lading can be transferred so as to give the transferee a right to sue at law in his own name, it is not "negotiable," because the transferee acquires no better title than his transferor had; and the same is true of policies of assurance and of other instruments made transferable at law by statute.6 5 holder. By a “bonâ fide holder" is meant a person who takes the instru- Bonâ fide ment for value and honestly without notice or knowledge of any defect in the title of the transferor;" and "notice or knowledge means "not merely express notice, but knowledge, or the means of knowledge, to which the party wilfully shuts his eyes-a suspicion in the mind of the party, and the means of knowledge in his power wilfully disregarded." It was formerly held that mere negligence or want of due caution in a party taking a negotiable instrument would fix him with the defective title of the party passing it to him, but this doctrine is now exploded, and it is settled law that even gross negligence is not a sufficient defence 1 Crouch v. Crédit Foncier, L. R. 8 Q. B. 381. 2 Note to Miller v. Race, in 1 Sm. L. C. 473, cited per Blackburn, J., in Crouch v. Crédit Foncier, L. R. 8 Q. B. 381; per Manisty, J., London and County Bank v. London and River Plate Bank, 20 Q. B. D. 239. 18 & 19 Vict. c. 111. Ante, p. 69. 4 Gurney v. Behrend, 3 E. & B. 622; see notes to Lickbarrow v. Mason, 1 Sm. 530 & 31 Vict. c. 144; British 6 See ante, p. 133. 8 Per Willes, J., Raphael v. Bank of England, 17 C. B. 161, 174. 9 Gill v. Cubitt, 3 B. & C. 466. Chap. XII. where the plaintiff has given consideration, though it may be evidence of dishonesty or mala fides.1 Wilful and fraudulent abstention from inquiry, if it arise from a suspicion or belief that inquiry would disclose a defect of title, may amount to notice; but it is not enough to show that there was carelessness, negligence, or foolishness, in not suspecting the defect of title.3 By custom. Modern usage. Foreign instruments. Instruments on their face not negotiable. Negotiability by estoppel. In order to be negotiable by custom, an instrument must be accustomably transferable in this country, like cash, by delivery.* In the case of English instruments, it has been held that they cannot become negotiable by custom and usage except by the ancient law merchant, and that modern usage cannot make an instrument negotiable. The authority of this case, however, has been much shaken; and it has now been decided that debenture bonds payable to bearer have by modern usage become negotiable instruments.6 With regard to foreign instruments, it must be shown that they are, by the custom of merchants, negotiable in this country, and it is not sufficient to show that they are negotiable in the foreign country. Probably they must be negotiable in the foreign country also, but this can be inferred from the fact that they are negotiable in this country.8 If it appears upon the face of an instrument that the right to recover thereon is limited to one particular individual, or that it is not to be transferable by delivery, usage or custom cannot make it negotiable. A debtor may contract in such a way as to prevent himself from setting up equities against the holder of an instrument. Under 1 Goodman v. Harvey, 4 A. & E. 870 0; 43 R. R. 507; Raphael v. Bank of England, 17 C. B. 161. See per Byles, J., Swan v. North British Australasian Co., 2 H. & C. 184; London Joint Stock Bank v. Simmons, [1892] A. C. 201. 2 Jones v. Gordon, 2 App. Cas. 616, Id. 628, per Lord Blackburn. See • Crouch v. Crédit Foncier, sup. 6 Bechuanaland Co. v. London Trading Bank, [1898] 2 Q. B. 658; Edelstein v. 7 Gorgier v. Mieville, 3 B. & C. 45; 27 R. R. 290; A.-G. v. Bouwens, 4 M. & W. 171; 51 R. R. 517; Goodwin v. Robarts, sup.; Crouch v. Crédit Foncier, sup.; Venables v. Baring, [1892] 3 Ch. 527. 8 Picker v. London Bank, 18 Q. B. D. 515. 9 Glyn v. Baker, 13 East, 509; 12 R. R. 414; Partridge v. Bank of England, 9 Q. B. 396, 425; London and County Bank v. London, &c. Bank, 20 Q. B. D. 232; 21 Id. 535; Colonial Bank v. Cady, 15 App. Cas. 267. As to bills, cheques and notes, see s. 8 of Bills of Exchange Act, 1882. |